Trump, China And ZTE

President Trump says trade wars are easy to win. But even so, his top economic advisers would rather avoid that possibility.

DAVID GREENE, HOST:

Yeah. So U.S. Treasury Secretary Steve Mnuchin and China's top economic adviser are going to meet today in Washington, D.C. The two will be leading negotiations over tariffs, the trade deficit, also the fate of Chinese telecom giant ZTE.

MARTIN: All right, we're going to take a closer look at these talks with Robert Daly. He's a former diplomat and China specialist with the Wilson Center here in Washington.

Thanks so much for being with us, Rob.

ROBERT DALY: Nice to be back.

MARTIN: So both countries here, the U.S. and China, have been threatening each other with tariffs, something neither really wants to happen. The Trump administration also wants to lower the trade deficit with China. That's the overall goal. What does China want out of these talks at this moment?

DALY: At this moment, China wants to, from its point of view, cease the abuse and the threats from the United States and return to business as usual, if possible. China didn't begin this latest round of what Scott Horsley earlier called a trade skirmish, not a trade war yet.

MARTIN: So they want to go back to the status quo.

DALY: It's...

MARTIN: But the Trump administration has made clear that's not...

DALY: The status quo...

MARTIN: ...Possible...

DALY: ...Has worked for China. It has enabled its rise. It has made China the No. 1 trading nation on earth. But increasingly, Americans and people in other countries as well - other national leaders - see China's trade practices as unsustainable and as harmful to their interests. So we would like to change those practices. China is willing to adjust a little bit and deal but not to cave. Its economic power is too great for it to cave now.

MARTIN: The top negotiator here on the Chinese side is a man by the name of Liu He. Do you have a sense of his mandate, what he has to offer the U.S. right now?

DALY: He is almost certainly coming with offers to lower the trade deficit with the United States. In 2017, the deficit was 337 billion in goods and services. The Trump administration has asked China to lower that by 200 billion over several years, which is almost certainly not achievable. Achieving it, furthermore, would put us in the zone of managed trade with China, something to which the United States is opposed. We tend to be free traders. But to ask for that kind of change that rapidly would mean managed trade.

Nevertheless, China does have room to buy more from the United States. They could import more and lower, year on year, the trade deficit. The problem with that for many members of the American Congress and many businesses is it's a transactional approach to the United States. It changes the numbers on the trade deficit - which most American economists don't think is the biggest issue with China - in the short term. But it doesn't adjust the fundamental structural issues, the difference in the way that China sees world trade and the way that the United States sees world trade.

MARTIN: So what is the biggest issue if it's not the deficit?

DALY: The fact that the Chinese economy is not open, that American corporations are not able to invest in China as Chinese corporations are able to invest here. They, furthermore, face a lot of barriers within China, including massive state subsidies to Chinese national champions. And there are signs that those subsidies are likely to increase as China tries to build its capacity to innovate and lead, particularly in emerging technologies, many of which America currently leads in. And many American companies see themselves being shut out.

Another major issue related to innovation capacity is China's long-term, decades-long practice of not only stealing American intellectual property but forcing American companies to turn over their intellectual property to Chinese partners, who then become their competitors, as a condition for gaining entry to the Chinese market. This is something that America doesn't do.

So it's - this is really about structural issues economically. But more broadly, it's about a balance of power, a struggle between the United States and China.

MARTIN: Right.

DALY: And this is why it gets far more complicated than the NAFTA negotiations that you were discussing earlier in the program.

MARTIN: Does anyone have the upper hand here?

DALY: Very unclear because we're looking at a perhaps seismic shift in the way that trade is conducted internationally as a result of China's rise. In the short term, in a trade war if it's a tit-for-tat tariff, because China has a surplus vis-a-vis the United States, America has a little bit more leverage. We import more from China. We can put tariffs on more goods. If China tries to then put more tariffs on American goods to China, because there are fewer of them, China runs out. The United States also has lower tariffs already than China. Our average tariff is about 3.7 percent. China is 10 percent. So there is room there. China is more vulnerable in the short term.

In the long term, America doesn't have the kinds of economic throw-weight internationally that it used to have. China has a bigger middle class. China is the No. 1 trading partner of most nations on earth, including the United States and Canada.

MARTIN: Two more micro-issues to ask you about - we've been talking big picture but two specific things I want to talk about. There were these news reports yesterday that two key members of the trade team for the administration got into this big row - trade adviser Peter Navarro, hard-liner on China trade, and Treasury Secretary Steve Mnuchin, who's a free trader. So having this public spat - does that kind of division so out in the open play in China's favor?

DALY: Sure. One of China's advantages is that it is unified in its goals. Liu He, the chief economic adviser to Xi Jinping, who's here, represents Xi. We know of no divisions on the Chinese side. They may exist. But we're not going to hear about, you know, angry fights between them, whereas the United States is really torn between more traditional folks like the treasury secretary and Peter Navarro, who see this economic competition with China as part of a broader geostrategic competition.

MARTIN: And lastly, ZTE, this huge Chinese telecom company - it's mixed up in all these negotiations. Quick backgrounder - the company was punished by the Commerce Department for violating U.S. sanctions on trading with Iran. But then President Trump came out and said, wait, we need to save jobs for ZTE. How do you read this?

DALY: Well, the president seems to be torn between advisers who are whispering different things in his left and right ears. So we don't know what he foresees with ZTE. It may be that he wants to be easier on ZTE, save the company in exchange for China's continuing to buy a lot of American soybeans and other agricultural products which come from the Midwest, where President Trump has a lot of voters. The midterm elections are a factor in President Trump's calculations.

MARTIN: Aha. Robert Daly, director of the Kissinger Institute on China and the U.S. at the Wilson Center.